Thursday saw two major setbacks in the quest to unionize Uber drivers.
Photograph: Martin Ollman/Getty Images

“It is what it is,” said Douglas O’Connor, the lead plaintiff in a class-action lawsuit against Uber that was settled on Thursday, dashing hopes for a very public courtroom debate over employment classification in the gig economy.

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Though the ride-hailing company agreed to some concessions – including allowing the formation of driver’s associations that are in some ways similar to a union – the proposed settlement for up to $100m allows Uber to continue to treat its drivers as independent contractors instead of employees.

“It’s a victory for Uber,” said Nelson Lichtenstein, the director of the Center for the Study of Work, Labor and Democracy at the University of California at Santa Barbara. “It seems to me that Uber got off really lightly on this.”

It seemed that the dream of a unionized Uber was dealt two major blows in a single day.

But on Friday afternoon, the Teamsters union announced that it was launching a campaign to organize Uber drivers in California, possibly through the very drivers’ associations that Uber has agreed to form. So while a silver bullet in the form of a jury trial is now unlikely, organized labor’s efforts to slay the Uber will continue.

“This settlement speaks to the establishment of drivers’ associations,” said Rome Aloise, president of Teamsters Joint Council 7. “We frankly think we’re the best vehicle for that.”

We’re not looking to beat a dead horse

Rome Aloise

Aloise said his union had experience representing independent contractors from the trucking industry, where many drivers are “owner-operators”, so they know how to provide representation outside of a traditional union model.

Asked whether the union would continue to fight over the classification of ride-hail drivers as employees, Aloise seemed prepared to move on.

“We’re not looking to beat a dead horse,” he said.

No single case

O’Connor v Uber Technologies, Inc was supposed to settle one of the most controversial questions of the current tech boom: are gig-economy companies like Uber and Lyft legitimate enterprises worth their multi-billion dollar valuations? Or are they dependent on the classification of drivers as independent contractors, which, if challenged, could cause their valuations to come crashing down?

The lawsuit was filed in August 2013 by Shannon Liss-Riordan, a Boston-based attorney who has been successful in misclassification class action suits, on behalf of O’Connor, a resident of South San Francisco who began driving for Uber Black in October 2012. (O’Connor quit driving for Uber in February 2014. He now works as a corporate limousine chauffeur and taxi driver. “I’ve moved on to greener pastures,” he said Friday.)

The suit survived two and a half years of legal challenges from Uber, and was slated to go to trial in June.

Labor activists had hoped that a favorable ruling could create an opening for them to unionize the growing ranks of on-demand workers, since independent contractors are not covered by federal labor law.

But a ruling in Uber’s favor could have cleared the way for more companies to embrace the independent contractor model, which startups like Instacart and Shyp have backed away from – in part because of the threat of misclassification litigation.

Instead, Thursday’s proposed settlement sidestepped the key issue, allowing Uber to continue to classify drivers as independent contractors but not producing a judicial ruling on the main question, which can be litigated again.

The expectations placed on the O’Connor case may have been too high in the first place, argued Catherine Ruckelshaus, the general counsel for the National Employment Law Project.

“No one piece of litigation typically resolves the issue of employment misclassification,” she said. “Everyone thinks it can and hopes it can, but the company will keep doing what it wants to do.”

She pointed to FedEx as an example. Despite various class-action lawsuits and adverse rulings on the employee classification issue, the company continues to treat drivers as independent contractors.

“The real way to get these practices to stop is for workers to organize and for the government to get involved,” Ruckelshaus added.

She said that various government agencies – including the IRS, the Department of Labor, the National Labor Relations Board, and state bodies that oversee things like unemployment insurance and wage and hour claims – have the power to investigate companies that are misclassifying workers and to carry out enforcement actions.

“It has to come from a variety of different enforcement actions, and then the company needs to do the right thing,” she said.

Uber’s $100m mistake

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The case against the leading gig-economy company only got as far as it did because of a costly drafting error by Uber in 2014. And in a small way, it was reflective of Uber’s broader reputation as a company that shoots first and asks questions later on regulatory matters.

Last fall, a federal judge ruled the O’Connor case could be widely expanded to drivers from 2014 and 2015 because the contract the drivers signed – in which they waived the right to bring a class action suit – was unenforceable under state law.

In the early stages of the O’Connor suit, Uber sent out a new contract to drivers in which they had to agree to waive their rights under a California law called the Private Attorney General Act. In short, it lets individuals sue employers for labor law violations on behalf of the state.

Courts have since ruled employees cannot legally waive rights under this law, reasoning it would take a lot of the teeth out of state labor laws. But in 2014, this was in dispute. Uber, for unclear reasons, included the so-called “Paga waiver” anyway.

In 2015, judge Edward Chen ruled that the entire arbitration agreement in Uber’s driver contract was unenforceable because of the way Uber wrote this clause. Uber quickly fixed the issue, but the judge said it could not be retroactively used to block people from joining the suit.

It could have been “a mistake that a lawyer made in drafting”, said Charlotte Garden, an associate professor at Seattle University’s law school. “It may have been an oversight or it may have been related to the fact that the law is in flux in this area.”

“You’re going quick, your company is growing, you’ve blown up a lot faster than you expected,” said Todd Scherwin, managing partner at the law firm Fisher and Phillips, who has experience in labor class action suits. “You may not have everything completely buttoned up.”

So while Uber drivers might want to continue to fight being labelled as contractors, their ability to band together in similar class actions in the future will be severely limited.

Seattle experiment

Both Uber and the Teamsters have some experience with the new kind of organizing that could arise from the O’Connor settlement.

According to Uber, it has already begun piloting a driver’s association in Seattle, Washington, though the company did not respond to questions about the pilot.

The Teamsters have also been organizing Uber drivers in Seattle, and hope to start the process of collective bargaining soon, thanks to the passage of local legislation similar to the now-defunct California state bill.

Dawn Gearhart, policy coordinator for the Seattle Teamsters local, suggests that the fact that Seattle drivers are organizing has already made a difference.

In January 2015, she said, Uber cut fares in Seattle from $1.35 to $1.10 a mile. “We had demonstrations and within a week, the company reversed the decision,” she said. In January 2016, when Uber again cut rates in cities across the country, Seattle was excluded.

“Workers want to make improvements now despite their classification,” Gearhart said. “Whether they’re employees or independent contractors, they want dignity.”